7 steps to follow before getting a moneylender’s loan
In 2014, a businessman borrowed $350,000 from a licensed moneylender at an annual interest rate of 240%. Although he managed to pay back twice the amount of the original loan, the man was taken to court by the licensed moneylender for failing to pay the entire owed amount.
Fortunately, the case was thrown out by the court and the ministry of law has since ruled that the maximum interest rates moneylenders can charge to 4% per month. The case also highlighted the fact that while you can have alternative options to borrowing from a bank or an illegal moneylender, it isn’t necessarily trouble-free.
When done correctly, borrowing from a licensed moneylender could be a good solution to your cashflow woes. If it’s your first time seeking a loan from one, here are some steps to follow:
1. Understand the fees payable
When looking for a loan, many focus only on the interest rates they will be charged. Fees can also add up to form a significant part of your payment. The good news is that since licensed moneylenders are regulated in Singapore, there are only certain types of fees they can charge, including the following:
- a fee not exceeding $60 for each month of late repayment;
- a fee not exceeding 10% of the principal of the loan when a loan is granted; and
- legal costs ordered by the court for a successful claim by the moneylender for the recovery of the loan.
2. Check if they are registered
There are a number of websites and illegal moneylenders disguise themselves as “legal” the best way to check is to see if they are listed under the registered lenders here. If they are not, it means that they are not regulated and can potentially bring some trouble and danger to you and your family if you borrow from them.
3. Compare rates
Like how you would borrow from a bank, different moneylenders offer different rates, so you may want to shop around to find you the best rates. You might want to use our free directory to save time finding the most competitive rates for you.
4. Secured vs unsecured
Taking up a secured loan will likely get you better loan rates, but think twice before pledging your property. If you can’t repay the loan, you may end up not being able to sell the property without first repaying your lender. What’s more, your dependents will likely suffer as well.
5. Know your rights
Even if licensed moneylenders are regulated, it does not mean they do not use any objectionable business practices. These are some actions they SHOULD NOT do, so make sure you file a complaint to the Ministry of Law if they carry them out:
- Ask for your Singpass and password
- Threaten you or use any abusive language
- Retain any of your personal identity documents
- Split up your loan into multiple loans where you’d then need to pay multiple times of administrative fees or late payment charges
- Make you sign an incomplete note of contract
6. What happens after I’m granted the loan?
Ensure that the moneylender explain all the terms and conditions of the contract, repayment schedule and all types of fees charged. Make sure that the lender delivers the right principal amount of the loan – they are only permitted for an upfront deduction of a loan approval fee of up to 10% of the approved amount.
On your part, you need to be sure to keep up with the repayments, and ask for a dated and signed receipt with each repayment. Retain all statements of accounts as evidence of payments in case anything goes wrong in the future.
7. Make sure you have a payment plan
Before you even take up a loan, you should have worked out a payment plan. Adopting a step-by-step approach will only cause problem because interest rates can compound fast and late payment fees will add up. Consequences can be dire if you are unable to pay, including bankruptcy, so think twice before borrowing!